Do Copyrights and Patents Inhibit Innovation?

March 6, 2003

Copyrights, patents and similar government-granted rights serve only to reinforce monopoly control, with its attendant damages of inefficiently high prices, low quantities and stifled future innovation, say economists Michele Boldrin and David K. Levine. More to the point, they argue, economic theory shows that perfectly competitive markets are entirely capable of rewarding (and thereby stimulating) innovation, making copyrights and patents superfluous and wasteful.

"Historically, people have been inventing and writing books and music when copyright did not exist," notes Boldrin. "Mozart wrote a lot of very beautiful things without any copyright protection." (The publishers of music and books, on the other hand, sometimes did have copyrights in the materials they bought from their creators.)

Contemporary examples are also plentiful.

The fashion world, although highly competitive, and with designs largely unprotected, innovates constantly and profitably.

The financial securities industry makes millions by developing and selling complex securities and options without benefit of intellectual property protection.

As for software, computers and semiconductors, they have historically had weak patent protection and experienced rapid imitation of their products, yet they are some of the most innovative industries today.

Monopoly rights are not only unnecessary for innovation, according to the authors, but may stifle it, particularly when an innovation reduces the cost of expanding production.

"Monopolists as a rule do not like to produce much output," they write. "Insofar as the benefit of an innovation is that it reduces the cost of producing additional units of output but not the cost of producing at the current level, it is not of great use to a monopolist."

Monopolists, after all, can set prices and quantities to maximize their profits; they may have no incentive to find better reproduction technologies.